Mobility and Redistributive Politics

Paper number: 99/15

Paper date: March 1999

Year: 1999

Paper Category: Discussion Paper

Authors

Jean Hindriks*
University of Exeter

Abstract

There is a widespread concern that a greater mobility of individuals can undermine any attempt to redistribute income at the local level. In this paper we derive the equilibrium level of redistribution when both the rich and the poor are mobile (although in different degrees) and when each jurisdiction chooses its redistributive policy by majority voting. This leads to a fundamental interaction whereby the policy choices of jurisdictions determine who they attract, and who they attract determines their policy choices. Our main findings are twofold. First, we show that a greater mobility of the poor can increase the equilibrium amount of redistribution. Second, we find that some jurisdictions can be stuck in equilibrium on the ÒwrongÓ side of their Laffer curve. The reason is that the poor are in a majority in these jurisdictions and they oppose to a potentially Pareto improving tax reduction because it would attract the rich and shift the majority.

* I am grateful to Tim Besley, Philippe De Donder, Dennis Epple, Francois Maniquet, Gordon Myers and Fred Schroyen for stimulating discussions and suggestions on earlier versions of this work. I have also benefited from the comments of participants at seminars at the CORE, the University of East Anglia, the University of Essex and the University of Namur. Financial support from the European Commission under contract no ERBFMBICT971968 is gratefully acknowledged. I retain responsibility for errors and views.